In his podcast addressing the markets today, Louis Navellier offered the following commentary.
Surging Retail Sales
The Commerce Department on Wednesday shocked everyone by declaring that retail sales surged 3% in January, which was substantially higher than economists’ consensus estimate of a 1.9% gain.
An 8.7% increase in Social Security checks to 70 million recipients likely helped to boost consumer spending as well as positive seasonal adjustments. Spending at bars and restaurants soared 7.2% and we likely aided by mild winter weather.
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Auto sales soared 5.9% and furniture store sales rose 4.4%. Sales at electronics and appliance stores rose 3.5%.
Not one retail sales category reported a sales decline in January. Excluding auto sales, retail sales still rose an impressive 2.3%. Clearance sales post holidays helped to reverse the big declines in retail sales for November and December.
In the past 12 months, retail sales rose 6.4%, which is perfectly in line with CPI inflation. There is no doubt that inflation is helping to boost retail sales. In the wake of the stunning January retail sales report, most economists will be revising their first-quarter GDP estimates higher.
Clogging Russian Pipes
In addition to energy stocks resurging as Russia continues to cut crude oil production, you may have noticed that many tanker stocks have also been surging in recent weeks. Essentially, the Western nations that are imposing sanctions on Russia are also allowing crude oil to be transferred at sea to insured, legal vessels.
A shadow fleet of tankers has been assembled by Russia to do these transfers at sea to keep selling its heavy sour crude, despite a $60 price cap and more strict financial sanctions.
The Wall Street Journal on Wednesday had an excellent article explaining how U.S. crude oil exports hit a record 5.1 million barrels per day in the week ending on October 21, 2022. Although these crude oil exports were aided by the release from the Strategic Petroleum Reserve (SPR), the open interest for West Texas Intermediate (WTI) contracts is now at a record high due to U.S. exports and high tanker traffic in the Gulf of Mexico.
WTI crude oil is cheaper than the Brent sweet crude, but more refineries around the world are increasingly set up to refine cheaper WTI crude. The bottom line according to the WSJ, U.S. crude oil exports are increasingly influencing global crude oil prices.
As Europe and the U.S. strives to wean themselves off of Russian crude oil, it is not looking good longer term for Russia. Essentially, Russia does not have a “Cushing Oklahoma” facility or a Strategic Petroleum Reserve (SPR) to store crude oil. As a result, as its export markets collapse, crude oil starts to back up in pipelines and effectively will force many wellheads to be shut.
Even worse, if crude oil stops moving through pipelines in the Artic, the remaining contents in the pipeline can freeze and create tremendous damage, which means that if the wellheads are capped that the pipelines may suffer irreparable damage.
Exxon Mobil Corp (NYSE:XOM) helped Russia develop a massive Kara Sea discovery in the Artic Ocean with Russia’s Rosneft. Additionally, Roseneft also had successful Artic exploration with Italy’s Eni and Norway’s Equinor. Exxon-Mobil’s cooperation with Roseneft ended after Russia invaded Crimea.
Equinor ASA (NYSE:EQNR) transferred their assets to Roseneft in 2022. Eni SpA (BIT:ENI) halted buying natural gas from Russia’s Gazprom in late 2022. The bottom line is that as Western countries stop buying Russian crude oil and natural gas, Russia is becoming increasingly isolated.
Furthermore, the Western technical expertise to operate wellheads and pipelines in extreme Artic conditions has vanished, which means that Russia is going to continue having a hard time maintaining its energy facilities, especially due to equipment sanctions.
Already Russia’s crude oil production has been reduced by approximately 1.5 million barrels a day compared to a year ago. Due to wellheads and pipeline complications in the Artic, another 3 to 5 million barrels a day of Russian crude oil could disappear in the upcoming months.
Russia is the second largest crude oil producer in the world after the North American production in Canada and the U.S. For North America, OPEC, Brazil, and other countries to make up for Russia’s lost crude oil production is problematic.
So my prediction that crude oil will rise to $100 per barrel in the upcoming months is now unfolding and $120 per barrel for Brent, light sweet crude is also very likely during peak summer demand.
Suspended Lightning
Ford Motor Co (NYSE:F) on Tuesday announced that it suspended production and shipments of its F-150 Lightning pickup due to a potential battery issue. Ford spokeswoman, Emma Bergg declined to disclose details of the possible battery issue, which is being investigated after a vehicle displayed a potential problem as part of the automaker’s pre-delivery quality inspections.
Specifically, Bergg said “The team is diligently working on the root cause analysis” and added that Ford is “doing the right thing by our customers” to resolve any potential issues before resuming production and shipments. It will be interesting if the battery issue is solely related to its current battery suppliers, which are LG Energy Solution and SK On.
Ford Motor announced this week that it is investing $3.5 billion to build an iron-phosphate battery plant in Marshall, Michigan with China’s CATL. Iron-phosphate batteries can be 100% charged and do not have the fire risk of lithium-ion batteries but are also heavier and less efficient.
So an electric vehicle (EV) with iron-phosphate batteries typically has a limited range. However, in trucks, like the F-150 Lighting and Mach-e, the difference may not be noticed by many customers.
The reason that Ford’s alliance with CATL is important is that iron-phosphate batteries do not utilize nickel or cobalt, so they are cheaper and will allow Ford to be more competitive and make more EVs.
Right now, Tesla Inc (NASDAQ:TSLA) in China utilizes CATL’s iron-phosphate batteries and VW Group is also supposed to utilize these batteries in some of its city cars with limited range.
The fact that GM has no iron-phosphate battery announcement yet means that Ford Motor for the next few years will likely be making more EVs than GM due to an acute shortage of lithium-ion batteries.
Coffee Beans
Around 60% of U.S. respondents say they believe in soulmates according to a 2021 study by YouGov. Adults who live with a partner (66%) and adults who are in a civil partnership (66%) are more likely to believe in a soulmate than those who are divorced (52%), widowed (61%), or married (59%). Source: Statista. See the full story here.
